Contributed by Roelof van der Merwe, National Tax Director, Findex

The 2019 Budget proposal to increase and expand the instant asset write-off is now law and according to this new law:

small business entities (SBEs) (broadly businesses with aggregated turnover of less than $10m)1 can potentially qualify for three types of instant asset write-offs in the 2019 income tax year and a $30,000 instant asset write-off in the 2020 income tax year; and

medium-sized businesses (MSBs) (broadly businesses with aggregated turnover of $10m or more but less than $50m)2 can potentially qualify for a $30,000 instant asset write-off in the 2019 or 2020 income tax year.

How does this affect you?

The increase and expansion of the instant asset write-off is great news for SBE or MSB businesses that can qualify for the instant asset write-off when they buy new business assets.

However, as the table below sets out, whether an SBE or MSB will qualify for the instant asset write-off, as well as the amount of the instant asset write-off in the 2019 income tax year, will depend on when the asset was first acquired and first used or installed ready for use in the business.

Small business entities and three kinds of instant asset write-off in 2019

When was asset acquired?

When was asset first used/installed ready for use?

Can claim instant asset write-off on assets costing less than:

After 12 May 2015 (ie not necessarily in 2019)

1 July 2018 – 28 January 2019 (inclusive)

$20,000

After 12 May 2015 (ie not necessarily in 2019)

29 January 2019 – 2 April 2019 (inclusive)

$25,000

After 12 May 2015 (ie not necessarily in 2019)

3 April 2019 – 30 June 2019 (inclusive)

$30,000

Medium-sized businesses (MSBs) and one kind of instant asset write-off in 2019

After 2 April 2019

3 April 2019 – 30 June 2019 (inclusive)

$30,000

For example, a MSB that acquired a $29,999 business asset on 2 April 2019 and started using the asset in the business on 3 April 2019 would not qualify for any instant asset write-off. However, if the MSB had acquired the same asset on 3 April 2019 and started using the asset in the business on the same day, the MSB would qualify for an upfront deduction of $29,999 in the 2019 income tax year.

Likewise, if an SBE acquired a $29,999 business asset on 2 April 2019 and started using the asset in the business on the same day, the SBE would not qualify for any instant write-off (because in that period the instant asset write-off is for assets costing less than $25,000). However, if the SBE had acquired the same asset on 2 April 2019 and only started using the asset in the business on 3 April 2019, provided the asset was not installed ready for use earlier than the time of first use, the SBE would qualify for an upfront deduction of $29,999 in the 2019 income tax year.

Footnotes

1There are three ways to determine whether an entity will satisfy the $10m threshold, ie the threshold will be satisfied if the aggregated turnover in the previous income tax year was less than $10m, the estimated aggregated turnover for the current year is reasonably expected to be less than $10m (such an assumption is usually made at the beginning of the year) or if the actual aggregated current year turnover is less than $10m).2The same methodology that is used to determine whether the $10m threshold will be satisfied for SBEs (ie three different tests), will apply to determine whether the $50m threshold will be satisfied by MSBs.

[This article was originally published in CCH Tax Week on 10 May 2019. Tax Week is included in various tax subscription services such as The Australian Federal Tax Reporter and CCH iKnow. CCH Tax Week is available for subscription in its own right. This article is an example of many practitioner articles published in Tax Week.]

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